What It Means If Credit Suisse Has a 'Lehman Brothers' Moment
Credit Suisse shares dropped to an all-time low has many investors worried that it’s an indication of a similar scenario to the fall of Lehman Brothers in 2008.
Oct. 3 2022, Published 1:21 p.m. ET
On Oct. 3, the drop in Credit Suisse shares to a historic all-time low has many investors worried that it’s an indication of a similar scenario to Lehman Brothers' fall in 2008.
Shares of Credit Suisse fell almost 10 percent Monday morning, bottoming out at $3.71 per share. That’s quite a difference from a year ago when Credit Suisse stock sold at $9.83 per share. However, stock prices for the Swiss-banking giant have fallen steadily over the last year amid concerns about the company’s financial health.
Meanwhile, the bank’s credit default swaps, which indicate investor confidence in the bank’s financial stability, are at an all-time high, Forbes reports.
What happens if Credit Suisse collapses?
This isn’t the end of the world, but things could get scary for the next few quarters, John Vail, chief global strategist at Nikko Asset Management, told CNBC’s “Squawk Box Asia.”
“The silver lining at the end of this period, is the fact that central banks will probably start to relent some time as both inflation is down and financial conditions worsen dramatically,” Vail told CNBC.
Is Credit Suisse having a “Lehman Brothers moment”?
The situation stirred up a frenzy of comments on social media saying Credit Suisse is having a “Lehman Brothers” moment. Lehman Brothers is a global financial firm that declared bankruptcy in 2008 due to the subprime mortgage crisis. It was the largest bankruptcy filing in history.
“One Wall Street CEO summed the @CreditSuisse drama this way — ‘The place is like a black hole..you just don’t know what’s in there…the wealth management and bank is strong. The investment bank is a shit show,’” Charles Gasparino, senior correspondent with FOX Business Network, tweeted.
“Both Credit Suisse and Deutsche Bank are rumoured to be on the brink of collapse. They have 2.7 trillion in assets under management between them. This could be our ‘Lehman’ moment when shit REALLY breaks,” Lark Davis of Wealthy Mastery tweeted.
Credit Suisse manages more assets than Lehman Brothers did when it filed for bankruptcy. According to Forbes, at the end of the second quarter of 2022, Credit Suisse was managing $1.47 trillion in assets, while Lehman Brothers had over $600 billion in assets under management when it filed for bankruptcy in 2008.
Credit Suisse's CEO tries to calm employee fears and says to ignore the rumors.
In a memo to employees, Credit Suisse CEO Ulrich Koerner assured that the bank’s management has transformation plans in the works and said not to confuse “our day-to-day stock price performance with the strong capital base and liquidity position of the bank,” Reuters reports.
"We are in the process of reshaping Credit Suisse for a long-term, sustainable future — with significant potential for value creation. Given the deep franchise we have, with a long-standing focus on serving some of the world's most successful entrepreneurs, I am confident we have what it takes to succeed," Koerner wrote in the memo, as reported by Reuters.
Credit Suisse will unveil its transformation plan on Oct. 27.
The bank plans to unveil a turnaround plan on Wednesday, Oct. 27, when it reports its third-quarter results. In July, Credit Suisse announced that it intends to transform its investment bank operations into a “capital-light,” less risky institution, The Wall Street Journal reports.